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The world’s leading sustainability consultancy 

# The more things change....

The world’s leading sustainability consultancy 

### Assessing Social Risks in Industry Swing Periods Jo Render, May 2014The world’s leading sustainability consultancy 

# About ERM

■ 160 offices in 40 countries

■ Over 5,000 employees

■ Clients include 50% of the Global Fortune 500 companies

■ Projects in more than 169 countries

■ Annual Gross Revenues of US$900m (FY13)

■ Over 40 year history 

### The world’s leading provider of environmental, health and safety, risk and social consulting servicesThe world’s leading sustainability consultancy 

# ERM in the Appalachian BasinThe world’s leading sustainability consultancy 6% 3%

6% 35% 3%

6% 6% 23% 35% 42%

No details available Technical challenges Revenue sharing Commercial issues Adverse weather

Health & Safety Land Access Permitting issues Environmental concerns Lack of social acceptance Causes of delay*

Extreme weather Social opposition 

## Why should you care about social risk?

Project delays (2008

– 2012)

*Does not sum to 100% due to multiple causes of delays Non technical

causes

30% 24% 46%

0% 50% Delivered on schedule No delay reported, project in progress

Delayed

Other

causes

Source: ERM Analysis 4The world’s leading sustainability consultancy 

# How does non

- technical risk impact project value?

5 Concept

...and value seeking studies optimise design Delays in obtaining permits and/or social accep

tance can erode substantial value Changing regulations can increase the costs of rehabilitation Events (e.g., protests) can disrupt production eroding value Feasibility Execution Operation Closure & Maintenance

Economic model estimates are refined...

Option 1

Option 2

Option 3

Option 4 Project options are analysed. Tendency to opt for options producing the highest NPV Pre

- FeasibilityNPV Project value established based on high level benchmarks Companies assume the best case scenario when it comes to sustainability NPV excluding sustainability

NPV including sustainability Projects face a number of key decisions

• Which water source should we use?

• What is the optimal infrastructure location?

• Do we invest in local skills, or bring in crews?The world’s leading sustainability consultancy 

## Selecting the preferred option

Concept Feasibility Execution Operation Closure & Maintenance Pre

- Feasibility

NPV including sustainability Project teams may consider more

‘ sustainable ’ options, but NPV dominates decision making

Selecting an option with lower NPV but less risk can prevent delays protecting value Designing projects with potential disruption events in mind can minimise impact More sustainable designs can reduce closure liabilities Option 1

Option 2

Option 3

Option 4 NPV excluding sustainabilityNPV

6The world’s leading sustainability consultancy 

# Key elements of social risk/opportunity analysis

7 

### Relationships

Investment Impacts Stakeholder analysis:

■ Expectations

■ Perceptions

■ Aspirations



### Social context analysis :

■ History

■ Economy

■ Culture

■ Capacity 

### Business analysis:

■ Where do you plan to go?The world’s leading sustainability consultancy 

# Drivers of Social Risks and Opportunities

8 Business needs:

• Land and resources

• Financial capital

• Regulatory approval

• Employees

• Contractors

• Physical capital

• Supplies

• Local infrastructure

• Safe and welcoming communities Community needs:

• Land and resources

• Financial capital

• Minimum standard of behaviors/protections

• Employment

• Business opportunities

• Physical capital

• Local infrastructure

• Health, safety and security of community Synergy

ConflictThe world’s leading sustainability consultancy 

# Our work in the Appalachian Basin

9 

### Stakeholder Analysis

Key informant surveys in in 2012; reviewed and updated in 2013

Active operating areas and exploration

Open

- ended surveys

■ what issues are you most concerned about?

■ what’s working/not working?The world’s leading sustainability consultancy 

# Stakeholder Priorities

10 

### 2012 (tail end of boom) 2013 (downturn)

Roads & Traffic

Safety

Housing Availability and Affordability

Economic Opportunity

Economic Vulnerability (boom and bust)

Communication & Transparency Economic Vulnerability (boom and bust)

Economic Opportunity

Housing Availability and Affordability

Safety

Roads

Communication & Transparency



## Surprised? Expecting to see something different?The world’s leading sustainability consultancy 

# What have we heard? What have we learned?

11 

### Economic Vulnerability/Economic Opportunity

**Companies hired , unemployment**  

## ↓ **, average incomes ↑; business growth** 



### Downturn

Many jobs moved to other shale plays

Newer small local contractors are idle
Downturn in associated industries (accommodations, restaurants, etc .)
Price inflation is decreasing more slowly

Low income groups remain vulnerable
Rural counties are facing growth constraints (infrastructure)The world’s leading sustainability consultancy 

# What have we heard? What have we learned?

12 

### Housing

**Vacancies down; prices**  **up. Good for sellers/landlords, developers,**  **associated businesses, and local revenue streams from property values.**  **Challenging for low income residents, other business sectors offering lower wages (recruitment)** 



### Downturn :
Vacancies up

Prices are slow to come down
Low income residents are still under pressure (market drivers)The world’s leading sustainability consultancy 

# What have we heard? What have we learned?

13 

### Safety

**Crime rates and incident rates began to rise. First responders were losing skilled employees to the industry. Industry actors investing in**  **H&S were recognized.**



### Downturn :

Crime rates and incident rates are still elevated

First responders have hired up, but still under pressure
In operating areas, the professionals point to population growth , which is related to economic growthThe world’s leading sustainability consultancy 

# What have we heard? What have we learned?

14 

### Communication and Transparency

**Stakeholders were looking for more and better information on what to**
**expect.**

**They wanted to be able to prepare for and manage the change**



### Downturn :
Stakeholders are still looking for more and better information on what to expect.

The downturn is considered by some as an opportunity **“to breathe ”**  and planThe world’s leading sustainability consultancy 

# Key Takeaways

15 

## • Not all stakeholders are alike

• It’s not all about environmental impacts . There are social impacts and they are complex

• Stakeholders at all levels are paying attention to whether companies are paying attention

• Some are preventable, with good planning

• All are manageable

– but you have to acknowledge them firstThe world’s leading sustainability consultancy Significant opposition

“They will destroy everything that we have”

“That’s not what we

are about around here”

Us v Them

Unaligned values and goals

Basic disconnects on both sides 

# Do you know where your stakeholders are?

16 Minimal tolerance

“I can’t speak for my neighbors, but I won’t have it on my land”

“I get the jobs thing, but look at all the problems they bring!”

Us v Them, but

more limited

Still focusing on what’s going wrong Acceptance

“The contract ensures they will protect our land and water”

“I see this deal as a catalyst to support

what we need to focus on”

Contract conditions

Short

- term/ time delimited Support

“”The Company is a critical partner in

this community”

“All I have to do is pick up the phone”

Shared vision

Mutual understanding

ForgivenessThe world’s leading sustainability consultancy 

# The elements of community support

17 Build and maintain trust and confidence Understand and manage expectations Identify and proactively manage risks, impacts, and opportunities (Actual and Perceived) Synchronize company and community development goals and capacities Proactively measure, improve, and report on performance 

### Relationships

Investment ImpactsThe world’s leading sustainability consultancy 

# Is your toolbox fully equipped?

18 Plan Program objectives and action plans Management systems Performance indicators

Implement Management capacity Communication Program partnerships Monitor and Report Program design, delivery, outcomes Risk profile Identify and Assess Strategic goals and objectives Expectations Risks and opportunities Roles and responsibilities

Company

Community DialogueThe world’s leading sustainability consultancy 

# Contact u s

Jo.Render@erm.com (202) 412

- 3503 **Visit www.erm.com**  **for more information, case studies and experience and to learn how ERM can help your**  **organization**